Morgan Stanley's Best Bets For 2019: Forget Valuation And Buy Franchises Like Facebook, Apple And Nike

It's mid-April and investors are focused on earnings season, oil prices and the Federal Reserve's next move on interest rates, but for those willing to take a little bit of a longer view,
Morgan Stanley offered up a list of 30 stocks Thursday that are its best bets for the next three years.

"It's really hard to bet against quality in the long run," writes chief U.S. equity strategist Adam Parker," so the firm's research analysts highlight the best businesses in their sectors, not the ones that look cheapest or have the best leverage to the current point of the economic cycle, where global growth is slowing and central bank policies are diverging.

"Our driving principle was to create a list of companies whose business models and market positions would be increasingly differentiated by 2019.

So which stocks does Morgan Stanley favor for a three-year "buy and hold"? Some are the usual suspects.

Facebook's billion-plus user base affords the opportunity for a deeper moat and expanding margins, Morgan Stanley says, but some of it's underlying businesses have unappreciated potential. The firm expects Instagram to produce $6.4 billion in advertising revenue in 2019, part of a projected 22.1% annual growth rate that will keep Facebook out ahead of peers. At 31 times future earnings Facebook shares aren't cheap, but they're also far from the most expensive among fast-growing tech companies.

This week, Facebook launched bots on its Messenger service aimed at keeping people on the platform for more of their daily activity and transactions, aping a model that
Apple has deployed to great effect. Morgan Stanley calls the iOS ecosystem "the world's most valuable technology platform, and projects that a focus on monetizing the massive installed base of users that already generates more revenue than any Internet company beside Amazon, which also made the list. (See "Why One Of The Year's Best Funds Finally Bought Apple.")

Apple qualifies as dirt cheap compared to some of the other names on the list, with shares going for less than 10 times earnings when accounting for the company's massive cash pile.
T-Mobile, by comparison, goes for more than 50 times expected 2016 earnings, but Morgan Stanley thinks the scrappy competitor to
AT&T, Verizon and Sprint has an opportunity to grab more market share thanks to greater iPhone penetration, the expansion of its MetroPCS business and a view that the company is the most "customer-friendly" of the wireless providers with promotions like recently giving all subscribers free access to Major League Baseball's live-streaming app for the entire season.

In the athletic apparel business, Morgan Stanley prefers the a stalwart to the upstart, picking
Nike for the next three years rather than
Under Armour. The latter's strong U.S. growth could continue to lure away customers, but Nike is hardly a stodgy has-been. Evolving technology, massive global reach and huge events like the Olympic and World Cup favor the Swoosh, and Nike sales should grow 9% annually through 2015.

Perhaps more surprising on the list are names like
IBM, which has struggled with a shift toward toward cloud-based businesses and analytics, a transformation that is "underappreciated" to Morgan Stanley.

Then there's
JPMorgan Chase, which the firm argues will gain market share in areas like payments and cut back expenses in its core banking business, but still faces the ongoing headwind of extremely low interest rates. The bank is unquestionably cheap though, trading for just a hair above book value. The question is whether the undervaluation of financial companies is a permanent affliction, or just a lingering after-effect from the financial crisis that will ultimately ease.

To identify the best franchises for investors to get behind for the next three years, Morgan Stanley scored its universe on factors like competitive advantage, business model, pricing power, cost efficiency and growth, while also considering management chops, governance and shareholder friendliness. See the full list below.